Iurii V. Vedernikov

Naval Engineer, Senior Research Fellow,

Museum of Russian Submarine History (St, Petersburg)

Author of the “Red Dragon. PRC Navy in the Beginning of XXI Century” monograph

ABSTRACT

China’s economic infiltration into the global space is multifaceted and multi-vector, and has a deeper nature than it might seem at first glance. In this movement, the key role belongs to the port infrastructure, through which the “Middle Kingdom” is consolidating its presence in a particular region of the world in private and the result is Beijing’s efforts to “Go Outside” in general. The article brought to your attention is exclusively of an overview nature, giving a general idea of ​​the subject of research, which is objectively limited by the framework of a journal publication.

The foreign economic dominant in the development of China dates back to 1998, with the beginning of the implementation of the fourth stage of the “Strategy of four modernizations” (1978) – the “Go outside” policy focused on the growth of export potential and the full use of the resources of the world market for the development of the national economy. As part of the further development of this policy, in the fall of 2013, China came up with a geo-economic project – ‘Belt and Road Initiative’ (BRI), with the declared goal  “…to establish closer relations between the countries of Asia, Europe and Africa and to raise the mutually beneficial cooperation with these countries to a new historical height…”.

According to initial estimates, it was expected to involve about 40-65 developing countries along the ‘Belt and Road’ geographic area in the BRI orbit. However, more than 100 countries took part in the first ‘Belt and Road’ Forum (2017). In modern times (January 2021), within the framework of project interaction, China has concluded agreements with 140 countries and 31 international organizations. Among the modern participants are 27 countries of Europe, 38 countries of Asia, 11 countries of the North American and 8 countries of the South American regions, 45 countries of Africa and 11 countries of Oceania.

Maritime transport is the main connecting element of the BRI, along with the railways. Its use is carried out in the Concept of Maritime Cooperation in the Construction of the ‘Belt and Road’ (2018) along three Blue economic corridors, including routes:

– across the Indian and Atlantic oceans, and the Mediterranean Sea – to the shores of Africa and Europe;

– in the southern part of the Pacific Ocean – to the shores of Australia and Oceania;

– through the Northern Sea Route.

In these conditions, it is strategically important for China to have access to port infrastructure in various countries of the World, since the port, as such, is a key point for managing sea cargo flows. Let us consider the main modern results of China’s investments in the port infrastructure of the countries of the world. The first and dominant strategic space for Chinese investment in port infrastructure is the South Sea Route, which runs through the Indian Ocean, Mediterranean and Atlantic waters.

Since 2008, the Chinese company “COSCO Shipping” began buying shares in the Greek port of Piraeus and by the end of 2016 received a controlling stake. The port came under the full control of the PRC

At the first stage of this advancement, China carried out goods transportation through the ports of Rotterdam and Hamburg, making the first investments even before the start of the BRI project. Since 2011, Chinese companies acquired (fully or partially) the terminals in many European ports, including Spanish Barcelona, French Le Havre, Dunkirk, Montoir (Saint-Nazaire) and Fos-sur-Mer (Marseille), Belgian Antwerp and Bruges, Italian Taranto and a terminal in Malta.

Since 2008, the Chinese company “COSCO Shipping” began buying shares in the Greek port of Piraeus and by the end of 2016 received a controlling stake. The port came under the full control of the PRC, investments in the modernization of the technical infrastructure and the development of the port personnel capacity amounted to about 500 million euros. This was one of the factors behind the growth of Piraeus cargo turnover from 433 thousand TEU in 2008 to 3.7 million TEU in 2016. In 2018, Piraeus became the second largest port in the Mediterranean.

To ensure commodity supplies to Western Europe, Beijing acquired assets in the ports of North Africa: Alexandria, Port Said and El-Dekheil in Egypt, Suez Canal, Oran in Algeria.

At the same time, the business media reported on possible Chinese investments in the ports of the northern Adriatic – Italian Venice, Trieste and Ravenna, Slovenian Koper and Croatian Rijeka. These ports are integrated by railways into the ‘Mediterranean corridor’ linking Milan, Lyon, Barcelona, ​​Madrid, Seville and Valencia, the ‘Baltic-Adriatic corridor’ – to Graz, Katowice, Warsaw, Gdansk, Kaunas and Riga, in the Black Sea direction – to Bucharest and Constanta, and the Central European direction – to Salzburg, Munich, etc. Less investment activity was observed in the port infrastructure of the Baltic and Black Seas.

It was reported in 2017 that Chinese investors were interested in the assets of the Ukrainian port of Chornomorsk (formerly the Ilyichevsk Commercial Sea Port). However, the following year, the legality of these investments was questioned and no active actions in this direction have been identified by the present time.

Back in 2006, the Hong Kong operator “Hutchison Port Holdings”, which owns 52 terminals in 26 countries of the world (2015), became the owner of container terminal in the port of  Gdynia in Poland. In 2009, Beijing acquired 100% of the shares of container terminal in Stockholm. In the fall of 2020, it was reported that the ports of Lithuania and Latvia were also included in the sphere of interests of Beijing. During 2014-2016, on the premises of the Nikolaev commercial port (Ukraine), the leading Chinese grain trader “COFCO Group” built a terminal for the import of Ukrainian grain products. It was reported in 2017 that Chinese investors were interested in the assets of the Ukrainian port of Chornomorsk (formerly the Ilyichevsk Commercial Sea Port). However, the following year, the legality of these investments was questioned and no active actions in this direction have been identified by the present time. In 2016 – 2019, China began the reconstruction of the Bulgarian port of Burgas (€ 20 million) and Varna (€ 120 million).

The use of Piraeus as a hub port and the capacities of the Mediterranean and Black Sea ports that gravitate towards it form the preconditions for the transformation of the structure of the existing freight traffic.

We believe that the implementation of these projects poses a serious competitive threat to the Northern European ports – Rotterdam, Antwerp, Hamburg, etc., since the fastest container delivery from Shanghai to Piraeus takes 21 days, while from Shanghai to Hamburg – 31. The use of Piraeus as a hub port and the capacities of the Mediterranean and Black Sea ports that gravitate towards it form the preconditions for the transformation of the structure of the existing freight traffic.

As a result, if by the end of the 2000s China controlled 1% of European container terminals, then in 2017 it controlled 6.5% and in 2018 – 10% of these capacities. The countries of the African continent are gradually becoming the main recipients of Chinese investments. In the period from 2005 to 2020, the total volume of Chinese financial investments in the countries of the Black Continent amounted to about $ 370.3 billion, carried out by the “China Development Bank” with the mediation of the “Sino-African Development Fund”. Along with lending to the governments of African states, infrastructure projects are the main objects of investment. In total, 5,756 km of railways, 4,335 km of roads, 34 thermal power plants, as well as 10 large and about one thousand small hydroelectric power plants were built by the end of 2016.

Indian Ocean acquires the position and qualities inherent in the Mediterranean Sea throughout human history, gradually becoming one of the central water spaces of the World. For China, a presence in the Indian Ocean is a prerequisite for ensuring its safe advance to the West, protecting its investments on the European and African continents.

In these conditions, Chinese investment in African ports aims both at ensuring its commodity supplies to Europe / Southern Mediterranean, as well as at supporting ongoing infrastructure projects in continental Africa. China made major investments and acquired shares in the following African ports:  Port de l’Amité and Nouakchott (Mauritania), Conakry (Guinea), Lobito (Angola), Kiribi (Cameroon), Abidjan (Ivory Coast), Teme (Ghana), Lecca (Nigeria), Walvis Bay (Namibia), Port-Sudan (Sudan), Doraleh, Damerjog and Tajura (Djibouti), Massawa (Eritrea), Mombasa and Lamu (Kenya), Dar es Salaam and Bagamoyo (Tanzania), Maputo and Beira (Mozambique), Ambodifotatra and Tamatave Madagascar).

In the processes of modern transformation of the ‘Global Order’, the Indian Ocean acquires the position and qualities inherent in the Mediterranean Sea throughout human history, gradually becoming one of the central water spaces of the World. For China, a presence in the Indian Ocean is a prerequisite for ensuring its safe advance to the West, protecting its investments on the European and African continents. The Pakistani port of Gwadar became one of the first objects for Chinese investment in the Indian Ocean, the creation of which was announced at the beginning of the XXI century. The construction of the port facilities was carried out by “China Communications Construction Company” and completed in 2007. In 2013, Gwadar seaport was transferred to the management of “Chinese Overseas Port Holdings Limited” for a period of 40 years. In the future, the port will be connected with the territory of China through the ‘China-Pakistan Economic Corridor’, the BRI backbone artery to the Middle East.

On the island of Sri Lanka, the port of Hambantota became Chinese.

Middle East: we note that the Hong Kong “Hutchison Port Holdings” owns container terminals (berths) in Basra (Iraq), Ajama, Aachen Bin Rashid and Ras Al Khaimah (UAE) in Persian Gulf, the Port of Sohars (Oman) in the Gulf of Oman, and the Port of Jazar (Saudi Arabia) on the Red Sea (2021). In addition to this, the “Hutchison Port Holdings” owns the ‘Karachi International Container Terminal’ in Pakistan, the container turnover of which in 2015 exceeded 1 million TEU, and in the same year opened a second terminal in Karachi – ‘South Asia Pakistan Terminals’, the container turnover of which in 2020, according to forecasts, was to exceed 2 million TEU. It was reported that “China Harbor Engineering Company” in 2016 built a new port of Doha in Qatar and implemented several projects for Saudi Arabia – two new berths in the port of Ras Az Zwar, the Ma’aben port and the gateway terminal in Jeddah.

On the island of Sri Lanka, the port of Hambantota became Chinese. Back in the early 2000s the government of Sri Lanka received a $ 6.9 billion loan from China and began infrastructure modernization of the country, including the reconstruction of the port of Hambantota conducted by “China Merchants Port Holdings”. In 2017, unable to pay off the debts, the government of Sri Lanka transferred 70% of the shares of the port of Hambantota to China, with the right to lease for 99 years, the obligation not to use it for the basing of Chinese naval forces and while maintaining the Sri Lankan sovereignty over the territory of the port [30]. In addition to this, “China Merchants Port Holdings” has a container terminal in Colombo.

In South-East Asia, Chinese businesses also have port infrastructure assets: in Myanmar, Bangla Desh, Singapore, Malaysia, Thailand, Vietnam, South Korea.

In November 2018, China entered into an agreement with Myanmar to build the Kyaukphyu deep-water port. This port is located on Ramri Island in the Bay of Bengal and is the starting point for the Sino-Myanmar pipelines to the Chinese city of Kunmin. It is believed that this line will help relieve maritime traffic, shorten the time for oil delivery, and avoid the threat to tankers going to China through the Molluk Strait. At the same time, there were plans to build a railway – the ‘Eastern Economic Corridor’, integrating the railways of Myanmar and China, and reaching Singapore and Thailand.

South Pacific, Australia and Oceania are the second global area of ​​Chinese investment in port infrastructure. The advancement of Chinese investments to the Green Continent was largely facilitated by the privatization program of state assets of Australia, including at ports of Brisbane. Sydney, Newcastle and Darwin. In Oceania, China built a port on the island of Espirintu-Santa for the Republic of Vanuatu, with a loan allocated to it. However, over time Vanuatu was unable to pay off its debts and in 2018 leased the port to China.

China is expanding its presence in the ports of the American continents.

The 2013 acquisition of shares in the commercial operator “Terminal Link” opened access to terminal management in Miami and Houston. “Hutchison Port Holdings” owns terminals on the Pacific coast of Mexico at the ports of Estenanda, Manzanillo and Lazaro Cardenas, the port of Vecarus in the Gulf of Mexico and a cruise terminal in the Bahamas. “Hutchison Port Holdings” also owns two terminals in the ports of Panama and Colon, which form the Panama Canal. “China Merchants Port Holdings” is building port facilities in Santiago de Cuba, berths in the ports of Balbao (Panama) and Man Sanillo (Mexico), signed an agreement on the construction of transshipment ports in Trinidat and Tobago. “China Merchants Port Holdings” is building port facilities in Venezuela and in 2018 acquired 90% of shares in the second largest container terminal in Brazil in the port of Paranagua for $ 765.8 million In the same year, “Cosco Shipping Ports” and the Peruvian government signed an agreement to build the port of Chancay, 75 km from Lima. The project includes five berths with a throughput capacity of 1.4 million tons of bulk cargo and a container terminal with a capacity of 1.5 million TEU per year. The cost of the project is estimated at $ 3 billion. At the same time, Chinese investments are being considered for the construction of a railway that “… will connect producers and miners in Peru and Brazil with the emerging Chinese market, reducing the logistics costs of trade with East Asia and allowing Chinese products to more easily reach the Atlantic coast … “.

The fourth global direction of Chinese investments in port infrastructure, the Arctic waterways, so far has not demonstrated significant progress. Currently, these projects are in a state of negotiations, it is expected that the terminals of Arkhangelsk (Russia), Kirkenes (Norway) and a deep-water port in Iceland will become the objects of investment.

Investments in the port infrastructure abroad have made China one of the leaders among port operators. Three companies should be singled out among the largest investors – “Cosco Shipping Ports”, “China Merchants Port Holdings” and the Hong Kong “Hutchison Port Holdings”. They carry out their global expansion with the support of organizations such as the ”China Development Bank”.

The objects of investment, with rare exceptions, are individual terminals, and not the seaport as a whole. Nodal deep-water ports have priority due to the use of large ships for long distance transportation by the Chinese, which need less port calls along the route. A prerequisite for investment is the creation of not only port facilities, but also the reconstruction of the adjacent transport infrastructure, contributing to the promotion of Chinese goods to the partner country and the import of its goods and natural resources in the opposite direction.

The main forms of China’s investment in port infrastructure are the conclusion of a concession agreement for terminal management, including as part of a consortium, the acquisition of shares in port management companies and investment in terminal operating companies. Another method is the purchase of a port terminal for debts. Thus, the acquisition of the assets of Piraeus occurred in the background of the Greek debt crisis. As for 2021, China is close to acquiring for loan debts the Montenegro port of Bar, the Cameroon port of Kiribi, Mombasa and Labu ports in Kenya and others.

For the host countries, Chinese investments are an opportunity to modernize their port infrastructure on preferential conditions, to obtain other accompanying economic advantages. However, it does not mean that Chinese investors always meet the “green light” among the business environment, political circles and local populations of host countries. Thus, in the process of acquiring the Greek Piraeus, protest sentiments widely spread among the local population. The German Hamburg port operators rejected the “China Communications Construction Company”’s project for the construction of a new container terminal. The leaders of many countries regard the China’s investments as a possibility for indirect influence on domestic political processes. But, one way or another, we must admit: China is gradually and systematically expanding its presence in the regions of the world, systematically and consistently creating, acquiring and modernizing a network of port terminals as a logistics basis for the implementation of its “Belt and Road” global project.